By Laser 1 Technologies

Inflation Impacts Workers

Have you heard the news media reporting on a conundrum when talking about the economy?

Here are some headlines:

  • Workers see their paychecks get smaller as inflation continues to rise (CNBC)
  • Why Real Wages Still Aren’t Rising (New York Times Opinion Section)
  • Wages aren’t growing when adjusted for inflation, new data finds (Market Watch)
  • Earnings Season Could Bring the Strongest Corporate Profit Growth Since 2010 (The Street)
  • The Bull Market’s Next Test: Slower Earnings Growth: Corporate earnings expanded 25% in the first quarter, a new high and a possible peak for growth (Wall Street Journal)

Profits Grow, Wages Don’t

Long story short: There’s been much celebrating about a strong economy, an economy in recovery, economic growth. But the average worker is seeing no benefit. While they are seeing a small increase in their wages, it’s not adequate to keep up with—much less overcome– inflation.

Here’s how they put it at CNBC on August 10:

  • Worker paychecks in July actually declined when accounting for inflation, according to Labor Department figures.
  • On a year-over-year basis, wages were essentially flat in real terms, dragged down by price pressures from housing costs and other areas.
  • The lag in wage growth comes while most other areas of the economy are performing well.
  • While the rest of the economy pointed higher in July, American workers took a step backwards. Hourly and weekly earnings languished when factoring in the rise in cost of living, according to figures the Labor Department released Friday.

Their takeaway: “The decline puts real wages at their worst level since October 2012.”

The Street points out:

S&P 500 companies could see earnings growth of as much as 20%over the second quarter, according to FactSet estimates, marking the second best three-month stretch since late 2010.

So where is all that money going? It’s clearly not going to pay increases. Sure, some of that money is being invested back in the business—but will it ever trickle down to the worker? The New York Times isn’t optimistic. Their editorial makes these observations:

But stagnant wages for factory workers and non-managers in the service sector — together they represent 82 percent of the labor force — is mainly the outcome of a long power struggle that workers are losing. Even at a time of low unemployment, their bargaining power is feeble, the weakest I’ve seen in decades. Hostile institutions — the Trump administration, the courts, the corporate sector — are limiting their avenues for demanding higher pay…

G.D.P. has sped up and may clock in at around 4 percent in the second quarter of this year, but not enough of that growth is reaching workers. This is, of course, the defining characteristic of high inequality. Since the early 1980s, G.D.P. growth has failed to consistently increase working-class incomes…

Still, in earlier periods, tight labor markets were able to deal a blow to inequality. The last time unemployment was at 4 percent, in the latter 1990s, the share of national income going to paychecks was 3 percentage points higher than it is today. In other words, even with the economy now near full employment, profits are squeezing paychecks.

Fortune said this on August 16:

While CEOs of the nation’s 350 largest companies earned about $18.9 million in 2017, a 17.6% raise from a year earlier, their workers’ paychecks increased roughly 0.3% during the same time period, according to a Thursday study from the economic Policy Institute. As a result, those CEOs are paid on average 300 times more than their employees—a level not seen since just before the Financial Crisis in 2007 and the Dotcom bubble in 2000…

Adding to echoes of the two prior stock market crashes in U.S. history: Investors are in an aging bull market. While it’s proved to be a lesson in folly to try to time the market’s downturn, it’s hard to ignore the fact that the economy and the stock market ebb and flow. As a result, U.S. bull markets since World War II have lasted roughly between 13 months to 113 months—we’re now just shy of that outer limit.

Economic Big Picture Is Worth Tracking

Are you keeping an eye on the economy? I know these headlines certainly grab my attention. There are so many factors which influence the direction of the economy, and while it’s unlikely that anyone is truly mastering the equations, it’s imperative that any business owner try to educate themselves on these questions.

Post a comment.